South Korea’s only casino for locals, Kangwon Land, is entering positive cash-flow territory less than a month after reopening mass gaming tables following a second COVID-induced closure.
According to a Wednesday note from JP Morgan analysts DS Kim, Derek Choi and Jeremy An, Kangwon Land has quickly reached mass table and slot GGR of around 50% of 2019 levels, with VIP tables back to 90%, since reopening its main gaming floor on 16 October. The casino had previously been closed since 23 August as South Korea experienced a second wave of the virus.
“Our analysis suggests that Kangwon Land can reach EBITDA break-even with around 50% of pre-COVID-19 GGR, which in fact is the level that the company is already witnessing in recent weeks,” the analysts said.
“In other words, Kangwon is already entering positive cash-flow territory (break-even EBITDA + some interest income), which should allow long-term investors to patiently wait for business normalization – even if we’re wrong about our near-term projections.”
Those projections take into account indications from the company that caps on seating capacity and total players allowed entry at any one time, currently at 2,200, will soon be eased. Assuming so, GGR recovery to 50% in the current quarter is seen to rise by another 10% each quarter in 2021 before returning to 100% by early 2022.
Even prior to the recent recovery, Kangwon Land reported Wednesday a 121.2% sequential increase in casino sales in the three months to 30 September to KRW76.62 billion (US$68.8 million), although the casino had been closed for much of the second quarter. The 3Q20 figures were down 81.1% on 3Q19 levels.
In response, JP Morgan has upgraded Kangwon Land stocks from Neutral to Overweight, “as we’re increasingly hopeful of a path to normalization from here,” the analysts state.
“Encouraging trends since casino re-opening last month confirms that its revenue is a function of capacity (as opposed to demand, which almost always outweighs supply), and vaccine break-through allows us to envisage a casino without social distancing (say, by 2022) and to play a long game here.
“Quite simply, we do not think it’s unreasonable to expect its EPS to go back to 2019 level by 2022.”